What is in this article?:
- Lenders, investors rush into restaurant space
- Haves vs. have-nots
Attendees of the latest Restaurant Finance & Development Conference appear to be bullish about the industry in 2014.
Haves vs. have-nots
The good news is that spending is expected to rebound somewhat next year, and ongoing improvements in the job market and wage growth will continue to climb. “We’re feeling good about 2014,” said Kelter.
The growing gap between the wealthy and the middle class, however, remains a consideration. On average, 90 percent of consumers with a household income of over $70,000 own their own homes, while only 50 percent of those earning less than $70,000 do.
With home values rising, home owners are likely to be more confident about their ability to spend, often called the “wealth effect,” while people who don’t own homes may remain wary about spending. That means restaurant brands that cater to upper income diners are likely to fare better in the continuing recovery.
“It’s really a haves-versus-have-nots recovery. A lot of people haven’t felt the recovery at all,” said Bielinski of CIT. “You need to see that big middle class participate.”
Restaurant companies are generally expected to benefit from more moderate commodity costs, though labor costs are expected to be a concern in 2014 as states, like California, increase their minimum wage.
Still, restaurant operators are getting much better at managing within their four walls, said Agustin Carcoba, president and chief executive of lender GE Capital Franchise Finance, or GEFF.
In addition, the restaurant industry has shifted from a three-daypart operation to six, with mid-morning and mid-afternoon snack as well as late night rounding out the traditional breakfast, lunch and dinner peaks. For example, Starbucks and Dunkin Donuts represented about 1 percent of industry market share 10 years ago, but now they capture about 5 percent to 6 percent, in part because their success with blurring dayparts, noted Carcoba.
While the Affordable Care Act was a hot topic at the conference last year, it was more of a sideline mention at this year’s conference. Trey Brown, senior managing director of GEFF, said he was worried that operators are “waiting and will manage to the full-time employee definition,” which remains uncertain. “The natural inclination is to procrastinate.”
The delayed debate in Washington, D.C., over the federal deficit is another potential obstacle coming in 2014.
“Having this approach of kicking the can three months down the line, it’s really harmful for businesses that need to invest for the long term,” said Carcoba. “Businesses need certainty. I’m hopeful at some point that both parties will figure out they need to work together for the next 100 years, as they have for the past 100.”